Re: Ulster Bank sees economy improving

Gosh, an optimistic report from a Banking institute...

Ulster Bank says in its Quarterly Economic Outlook (not available online) that the prospects for the Irish economy remains favourable in the medium term, albeit that growth is set to slow sharply this year. GNP growth in 2007 was 4.5% but is forecast at 0.5% in 2008. A rebound to 2% in 2009 is predicted.

In addition, market turmoil has become more virulent, at least in so far as interbank interest rates and cost of funds is concerned. True, it looks as if the worst of the crisis, in a strictly financial sense, is behind us.

Investment should again turn positive in 2009 when new house completions level off. Commercial construction is expected to hold up well this year but to weaken in 2009.

The forecast 2008 Budget deficit is likely to overshoot to 2% as housing weakens further, the economy slows and cyclical spending rises. This will still be comfortably below the EU 3% limit.

House prices fell by 7.3% in the year to December 2007. Ulster Bank expects them to fall further but to level off in the second half of 2008, leaving them down 5% by year end.

Housing supply has also been sharply curtailed but confidence has yet to improve. Ulster expects this to happen later this year. Forecasts for new house completions have been lowered to 42,500 in 2008 and 2009. The reduction in the 2009 forecast to 42,500 reflects the need to work off the overhang of new houses before completions return to their underlying rate of about 50,000 per annum.